Vice President for State Fiscal Policy
Most states have taken out federal loans to help pay for the surge in unemployment insurance (UI) benefits caused by the sharply higher unemployment of the past few years, and the first round of interest payments on those loans comes due today. Because the UI system is funded through business taxes, states are financing these payments mostly by raising the taxes paid by employers. These tax increases, combined with additional employer tax increases required to cover the first loan principal payments due in January, are ill-advised at this time given the continued weak state of the economy.
The President has proposed a set of UI reforms that would avoid these tax increases on employers while the economy remains fragile and also accomplish something even more important — helping states build stronger UI systems for the future. As we’ve explained, without reform most state UI trust funds will face the next recession still in debt from the current downturn or just barely solvent. Either way, they’ll be in no shape to respond effectively to another surge in unemployment.
The President’s plan would:
The congressional “supercommittee” on deficit reduction should give the President’s proposal serious consideration. It would help the economy in the near term and help restore the health of the nation’s UI system — a key stabilizer for reducing the depth of future recessions. It also would reduce the deficit over the next ten years by $34 billion, according to the Congressional Budget Office. Congress could strengthen the plan by adding provisions in a UI reform bill already before Congress that would give states more incentives to reform their UI financing systems, prepare adequately for future recessions, and maintain UI benefit levels.